Conversion Rates and ROI for Internet Beginners

Two terms that SEO and SEM specialists use a lot are “conversion rate” and “ROI” or return on investment. Both are fairly straightforward concepts and important numbers when calculating the success of your Internet based business. They can also be tracked and improved.

First let me explain the difference between SEO and SEM. SEO stands for Search Engine Optimization and it is basically the process of making your website more visible by placing links in high traffic areas where people will see them. SEO professionals will also sign you up for search engine indexing services and directories that may be beneficial to you and rewrite your website to make your content more relevant. SEM stands for Search Engine Marketing and means buying traffic through pay per click, email marketing, and other methods that produce immediate results. Both strategies cost money, so don’t listen to anyone who tells you that SEO is free.

That brings us to our terminology for this article, the terms “conversion rate” and “ROI.” Both are connected to each other. A higher conversion rate will generally mean a higher return on investment. Conversion rate means, for the sake of simplicity, the percentage of people who visit your site and actually buy something. The return on investment is the amount of money that comes in when you spend a specified amount on SEO or SEM techniques.

Here’s a simple example that will help you understand. You have a website that sells a product for $50. Your SEM company is proposing that you spend $500 on a pay-per-click campaign that they are sure will bring you business. You spend the $500 and get 1000 visitors. Twenty five of them (2.5%) buy your product (Total: $1250). Your conversion rate is 2.5% and your return on your $500 investment is $1,250. Your profit, a number that everyone understands, is $750.

The concept is exactly the same as that of conventional companies. When you spend money to get new customers, you want to make sure you get that money back and make a profit. Terminology on the internet can be different and the scale of the numbers can be a bit intimidating, but when you break them down, you’re looking for the same result. The difference in internet marketing is the tools you have to improve those numbers.

Let’s look at some hypothetical situations. What happens if you increase the price of your product to $60.00 or lower it to $40.00? Will it improve your conversion rate? What happens if you add more content to your landing page and provide more information? Will that improve your conversion rate or give you a higher ROI? Talk to your internet marketing professional and ask these questions. Now that you’ve read this article, it will sound like you really know what you’re talking about.